What's the idea?
Couchbase provides database solutions that meet today's demands for information scaling rates and business continuity. Microsoft's recent global outage due to a bug in its CrowdStrike software proved that even short-lived outages can cause multi-billion dollar damage, which could prompt businesses to move to more reliable and modern NoSQL databases.
In 2024, companies are poised to spend an average of $35.5 million to improve their IT systems, a 27% increase from the previous year. Following Q1 2025, Couchbase increased the amount of revenue it expects to recognise in the current financial year by 18.16% and backlog by 20.77%.
The closing of several Couchbase deals with new customers has been postponed from Q1 to Q2 of FY2025 due to force majeure, which will boost the company's results for the current fiscal period. Couchbase raised its full-year revenue guidance to $204.5–$208.5 million. The company continues to develop its new Capella service, which has recently become a major factor in attracting new customers.
About Company
Couchbase (BASE) is a company that provides a comprehensive offering for analyzing and structuring large amounts of information using non-relational databases. Couchbase's flagship product is Couchbase Server, a database model that combines the best of two major types of information structuring: NoSQL and SQL. The company was founded in 2011 and is headquartered in California, USA.
Why do we like Couchbase Inc?
Reason 1: Transformation of database formation methods
Couchbase is a company that provides a comprehensive offering for analyzing and structuring large amounts of information using non-relational databases. The company's flagship product, Couchbase Server, is a database model that combines the best of the two main ways of structuring information: NoSQL and SQL.
While SQL databases (relational) assume a rigid structure of organizing information in a tabular format (Excel spreadsheets are the main example), NoSQL databases (non-relational) allow more freedom and speed in aggregating and processing information by combining data of different formats through a less strict query language.
NoSQL databases have emerged in response to the aging architecture of SQL solutions. As Couchbase notes, the underlying architecture of relational products has not changed significantly since their inception, while the application requirements they must support are changing rapidly, especially with the advent of generative artificial intelligence (GenAI), which relies heavily on "real-time data." Legacy database technologies cannot cope with digital transformation because they were not built to update and respond within microseconds.
Just recently, humanity witnessed how dependent the modern world is on technology and its smooth operation: on 19 July 2024, a bug in a software update from cybersecurity firm CrowdStrike caused a global outage that shut down Microsoft computers around the world. As the outage mainly affected corporate computers, it brought businesses around the world to a standstill.
Despite the fact that the faulty software could only be downloaded within an hour and a half, it managed to be installed on more than 8.5 million systems that were knocked out of service. It is estimated that the damage from the 78-minute incident, which has been dubbed a "historic" outage, exceeded tens of billions of dollars.
CrowdStrike's example confirms that our world has become overly dependent on technology and, as a result, the requirements for maintaining and operating it are constantly evolving. This conclusion is even more relevant for building databases: the architecture of the past does not match the rapidly growing volumes of information of today's world, which can lead to new global failures if businesses do not move to more modern solutions in time.
Couchbase is one of the key players in modernizing legacy database architectures. The company offers a hybrid solution that takes advantage of both relational and non-relational methods of information aggregation. The NoSQL part is adapted to the needs of modern business: companies can collect data in any format and link it into a single structure without the need for unification, apply vector search and advanced analytics, which significantly accelerates information processing in the era of artificial intelligence. At the same time, Couchbase products also support legacy SQL database formats, providing an easy transition to enterprise solutions.
A recent Couchbase survey of 500 senior IT executives proved that the market is ready to invest in database infrastructure. Indeed, 59% of respondents are concerned that their organizations' ability to manage data will not meet the demands of the generative artificial intelligence era without significant investment. These concerns are justified, as GenAI-enabled vector search is used by only 18% of organizations, and 54% of respondents said that their organizations are not implementing any of the elements of a GenAI-enabled information processing strategy.
Additionally, the Couchbase survey found that in 2024, businesses will be willing to spend an average of $35.5 million to improve IT systems, representing a 27% increase from the previous year.
Against this backdrop, the company expects the global database management systems market to continue to grow rapidly. By 2027, its volume is expected to reach $136 billion, compared to about $80 billion in 2023, which implies a growth rate of more than 55% over the next three years.
Database management systems market growth
The largest growth is expected in the non-relational and hybrid database segment, which Couchbase serves. According to Maximize Market Research, the global NoSQL database market will grow from $7.55 billion in 2023 to $47.39 billion in 2030, assuming a compound annual growth rate (CAGR) of 30% between 2024 and 2030.
Thus, the world is undergoing a transformation in the way information is stored and processed, moving away from legacy SQL databases to more modern non-relational technology. These market changes are driving increased investment in NoSQL database solutions, providing Couchbase with excellent opportunities to scale its business.
Reason 2. Acceleration of growth in the current quarter
Amid the positive market environment, Couchbase has been able to translate rapid growth in demand into an increase in its own financial performance. The company has nearly doubled its revenue over the past three years, and quarterly revenue growth is still in the double digits. Meanwhile, in Q1 FY2025, Couchbase exceeded its own revenue guidance, earning $51.3 million versus the expected $48.1–$48.9 million.
Company revenue growth
Couchbase is also increasing its Annual Recurring Revenue (ARR), which is an integral part of the company's strategy as it provides some of its services on a subscription basis. From Q1 FY 2023 to date, the company's ARR has grown at a CAGR of 22%.
Company ARR growth
A number of indicators suggest that Couchbase will continue to scale rapidly in the coming quarters, and there are no signs of a slowdown in business expansion.
Of particular note is the increase in backlog, which includes upfront payments for subscription-based services as well as non-cancellable contract payments that will be billed to the company's customers in the future. At the end of Q1 FY2025, Couchbase's backlog was $220 million, of which $137 million will be recognised in the next 12 months. The same figure last year was $165.6 million, of which $112.1 million was expected to be recognised in the next 12 months. In other words, Couchbase has increased the amount of revenue it expects to recognise in the coming year by 18.16%. The charts below show the dynamics of this indicator in the past.
Growth of the company's backlog (total - Fig. 1, planned to be received within 12 months - Fig. 2)
Another indicator of the likely acceleration of Couchbase's business growth in the near future can be seen in the comments made by the company's management on its Q1 FY2025 earnings call with investors. For example, management stated that it took longer than previously expected to conclude several agreements with new customers, with the result that these agreements became effective as early as Q2 FY2025 instead of Q1. This was the reason for the lower ARR growth momentum in Q1 FY2025 compared to previous periods.
However, during a conference call after the first month of Q2, Couchbase management said that several of the pending deals have already been successfully closed and several more should be signed during Q2.
Couchbase management noted that the increase in contract signings will not prevent the company from achieving its goals for the year, and the slowdown in ARR growth in Q1 FY2025 does not fully reflect the positive business momentum. Moreover, following Q1 FY2025, Couchbase raised its revenue outlook for the whole year. The updated forecasts suggest that the company will earn $204.5–$208.5 million in revenue versus $203.0–$207.0 million as previously expected.
As such, the growth in the backlog, as well as the deferral of several deals to Q2 FY2025, could lead to an acceleration in Couchbase's performance in the current reporting period, which is likely to be viewed positively by investors following the release of the statements. In addition, the increase in revenue guidance provides additional confidence in the continued strong growth of the business.
Reason 3. New product development
Speaking of Couchbase's rapid growth, it's important to mention the company's relatively new and revolutionary product, Capella. Unlike the long-standing Couchbase Server and Couchbase Mobile solutions, which the company offers as licensed software, Capella is a cloud-based product. It operates on a DBaaS (Database as a Service) model, meaning that it is not accessed through software licensing, but rather for a monthly fee based on usage. With the launch of Capella, the company has made it much easier to attract new customers, as users do not need to spend time installing and configuring the software to use the service: the product's functionality can be accessed with a few clicks from their personal cloud cabinet.
Growing customer interest in Capella is supported by Couchbase results. As management noted at a recent teleconference, the majority of clients attracted in Q1 FY2025 started using Capella. At the end of the reporting period, the service's share in the company's total revenues reached 29% and in ARR reached 11.5%.
Capella's popularity with new customers is due not only to the simplicity of the service, but also to its continuous improvement. For example, in Q1 FY2025, Couchbase piloted Capella iQ, a modification of the service that enables it to work with local languages, which is particularly important when working with user data accumulated in European, Eastern and other languages. The platform's ability to support more languages naturally expands Couchbase's potential market, creating a significant future opportunity.
In addition, in Q1 FY2025, the company made available to Capella users vector search, which is inextricably linked to the GenAI neural networks. This is an important feature that enables fast navigation across disparate and multi-format databases through hybrid search, which combines similarity, text, location, range and other values in a single action. Vector search speeds up the retrieval and analysis of information, which is particularly important for organizations that collect information about user behavior from multiple sources. As Couchbase management noted on the call, the vector search tool has already received a lot of positive feedback.
Couchbase continues to improve Capella from a cybersecurity perspective. The company has enhanced the service's alerting capabilities to make it easier to integrate with external threat monitoring systems. In addition, Couchbase has given customers the ability to use their own encryption keys when working with Capella. This provides easier security controls for customers and can also be an incentive to grow the user base.
As such, the new Capella product is one of the key drivers for Couchbase to continue to scale its business. As a result of the company's ongoing efforts to improve the service and introduce new features, Capella added more new users than any other Couchbase product in Q1 FY2025.
Financial performance
Couchbase's fiscal year ends on 31 January. With this in mind, the company's results for the trailing 12 months (TTM) compared to the previous fiscal year can be summarized as follows:
- Revenue totaled $190.37 million, a 5.74% increase over FY2024.
- Operating loss remains at the same level of -$84.54 million.
- The net loss was -$79.30 million versus -$80.18 million at the end of the previous year.
Revenue growth was mainly driven by an increase in subscription costs, which also had a favorable impact on the company's results for 1Q FY2025. Operating and net loss remained flat due to higher research and marketing expenses, which, in our view, is justified in the context of the company's rapid development.
Dynamics of the company's financial indicators
Couchbase's results for Q1 FY2025 are summarized below:
- Revenue increased 25.20% year over year to $51.33 million.
- Operating loss remained flat at -$22.54.
- Net loss was -$21.00 million versus -$21.88 million a year earlier.
Dynamics of the company's financial results for Q1 2025
- On a TTM basis, operating cash outflow decreased to -$18.15 million versus -$26.89 million for FY2024.
- Free cash outflow decreased from -$31.60 million to -$22.57 million.
The decrease in operating and free cash outflow is mainly due to an increase in the company's working capital.
Company cash flow
Couchbase's balance sheet can be characterized as healthy:
- Debt consists solely of rent and is $4.49 million.
- Cash equivalents and short-term investments account for $160.20 million.
Despite losses, a high liquidity buffer allows the company to cover cash outflows and maintain sufficient financial strength.
As mentioned earlier, Couchbase expects improved financial performance in the following periods: a 19.15% YoY increase in revenue to $51.4 million in Q2 FY2025 and a 15.81% YoY increase to $208.5 million for the full year FY2025, as well as a near quadrupling of operating loss. This gives confidence in the company's upside potential.
Stock valuation
Due to the narrow focus of Couchbase's business, we believe it is irrelevant to compare the company to technology giants such as Microsoft, Google or Amazon, for which big data analytics is only a small part of their business. However, Couchbase has a direct competitor MongoDB, against which Couchbase trades at a discount based on EV/Sales of 4.30x. The absence of other multiples is due to the company's loss at the operating level.
Comparable estimate
The average price target from Wall Street's top-12 investment banks is $28.9 per share, which is in line with our consensus and implies a potential upside of 46.7%.
Price targets of investment banks
Key risks
If Couchbase is unable to achieve operating profitability, its financial strength could be adversely affected, which would undermine investor confidence and negatively impact the company's market capitalization. Potential slowdown in growth. Couchbase's current growth model assumes rapid revenue growth and free cash flow generation through economies of scale. If the company's earnings growth begins to slow, investors may become skeptical about Couchbase's strategy, which could lead to a decline in the stock price.
High competition. The database business is not unique and large technology companies also have relevant solutions. If Couchbase does not improve its products in a timely manner, it could see its customer base migrate to competitors.